Russia Lines up New Gold Buying through Its Sovereign Wealth Fund

The comments below are an edited and abridged synopsis of an article by Ronan Manly

In a significant and strategic development for monetary metals, the Government of the Russian Federation has just introduced legislation that will allow Russia’s giant National Wealth Fund (NWF) to invest in gold and other precious metals. The NWF is Russia’s de facto sovereign wealth fund and has assets of $185 billion.

Russia Lines up New Gold Buying through Its Sovereign Wealth Fund | BullionBuzz | Nick's Top Six
Russia gold reserve stock (creative concept): golden bars (ingots, bullions) are covered with russian flag in the storage (treasury) as symbol of national gold and foreign currency reserves (gold holdings), financial health (stability) of state, economic growth, stabilization fund

The changes will allow the NWF to buy and hold gold and other precious metals with the Russian central bank. In March 2020, it announced that it would suspend purchases of gold in the domestic market, and that “subsequent decisions on gold purchases will be made subject to financial market developments.”

One of these decisions seems to be returning to the gold market, with the NWF continuing where the Bank of Russia left off in early 2020. Any NWF gold buying will also mean less Russian gold for export, but perhaps this is the intention in light of heightened sanctions risks on Russia from the US and EU, and the risks of overseas asset freezes.

Physical gold has no counterparty risk and no credit risk, so it is the ultimate monetary asset for a state to hold when worried about sanctions.

As Dmitry Tulin, first deputy governor and board member of the Bank of Russia said in 2016, “Russia is increasing its gold holdings because gold is a reserve asset that is free from legal and political risks.”

With the arrival of the NWF as a new gold buyer, it looks like Russia is involved in a grand game of geopolitical and monetary chess.

Up for discussion: Gold as diversification and protection; gold—more sustainable than financial assets; and conclusion.

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